PRA clarifies stablecoin and e-money expectations for banks
The Prudential Regulation Authority (PRA) has reaffirmed and clarified its expectations for banks regarding innovations in deposits, e-money, and regulated stablecoins. This letter supersedes previous guidance, focusing on retail risks and distinct branding.
Navigating digital money evolution
The PRA's letter, co-signed by David Bailey, Charlotte Gerken, and Rebecca Jackson, updates previous 2023 guidance for deposit-takers.
It acknowledges significant progress in digital money innovation, including the UK's February 2026 secondary legislation for stablecoin and cryptoasset regulation.
While welcoming efficiency benefits, the PRA remains focused on risks to safety, soundness, and financial stability.
The core risks previously identified remain unchanged, prompting additional clarity on existing expectations, particularly concerning retail contexts.
The letter emphasizes the risk of contagion if deposits (FSCS protected) and other digital money forms (not FSCS protected) are offered under the same branding, citing lessons from the March 2023 banking turmoil.
Distinct branding and insolvency-remoteness
The PRA reaffirms that deposit-taking entities should only offer innovations in money to retail customers in the form of deposits.
If a banking group wishes to issue stablecoins or e-money to retail customers, this must be done from a non-deposit-taking, insolvency-remote entity with distinct branding.
Supervisors will assess the overall customer experience, including naming, branding, access arrangements, and product information, to ensure sufficient differentiation from retail deposits.
Firms must also ensure clear, prominent, and ongoing information about differing protections.
For wholesale use cases, the PRA encourages early engagement with supervisors, noting the Digital Securities Sandbox may provide an environment to explore such proposals.
Clarity over revolution
This updated guidance represents a necessary evolution in the PRA's approach, not a radical policy shift.
It underscores the enduring challenge of balancing financial innovation with robust consumer protection and systemic stability.
The emphasis on distinct branding and insolvency-remoteness reflects a pragmatic response to past market events, aiming to prevent unwarranted loss of confidence.
For firms, the message is clear: innovation is welcome, but not at the expense of clarity or safety.